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Thursday, January 20, 2005

India : Economic And Business Issues Take Centerstage

India has always been a bundle of contradictions.For those who monitor the progress within India, they are certain that India is moving - moving at a good pace - some declare that India is all set to conquer the world; some write indian technology related services will sweep the world etc. euphoria ad infiniteum..I beleive that while we have indeed progressed, we have a long long way to go. The national ethos for building a super economic power and concerted actions - covering all interlinkages within the system in a time bound manner is completly missing. I can go on and on.. that can perhaps wait for another occassion. Here are three distinct but interrelated view on India's development - both and outside in, in between and inside out perspectives that appeared recently.
Fareed Zakaria, Editor of Newsweek magazine recently wrote after a visit to India, "What has changed between Gujarat earthquake and Tsunami in these four years is the most important new reality about India: the growing wealth, strength and confidence of Indian society. He ends the analysis saying,” China is following the East Asian model, with a strong government promoting and regulating capitalist growth. Historically, this has been the most effective way out of poverty. But India might well be forging a new path, of necessity, with society making up for the deficiencies of the state. Actually, this is not entirely new. In some ways India's messy development resembles that of another large, energetic, chaotic country where society has tended to loom larger than the state—the United States of America. It is a parallel to keep in mind”.

The view from the Wharton Indian economic forum is :On the surface,India looks like a winning emerging-market investment play,with its populous middle class, robust multinational presence, and relatively stable democratic government. Dig a little deeper, however, and myriad risks start coming to light - a slow-moving commitment to building infrastructure; a need for structural reform in the financial markets; and a legacy of super-protectionist policies. The challenges were numerous but felt that the latest investments - especially in sectors such as manufacturing and real estate - signaled that interest in the country is broadening rapidly.
There are hidden jewels in the manufacturing sector as well." Manufacturing is growing in part because the Indian consumer market is becoming increasingly robust. During the past few years, the middle class has begun to play an increasingly active role in the Indian economy. Tax reforms have made manufacturers to become more competitive, people are beginning to take more and more credits are making India to move form a supply driven to demand driven economy. India has stood by as tens of billions of dollars in foreign direct investment have flowed to other asian countries Once the manufacturing sector has more confidence in India's abilities, the country should attract major FDI inflows. "China offers more cooperation from its government. Execution of reform in India is very important for the country to able to compete for investment." "Indian companies are also more ROI-focused than Chinese companies. While China has great macroeconomics, growth, and government policies, India has good companies that are focused on cost. But the country's low FDI is a function of poor infrastructure; there are delays at many levels, for instance in shipping."The nature of businesses in China and India were different. "India has knowledge businesses, which do not require as much capital investment, unlike the businesses going into China."
"Since India has enormous human talent, services and IT should continue to be the focus of investment. The manufacturing sector just doesn't offer similar opportunities, and Indians may already have lost that battle." “The entrepreneurial nature of Indian companies has allowed many to succeed despite the government, so the manufacturing sector should survive and grow effectively - and we should see years of growth ahead."

Vivek Bharati writes that Inequities abound as India develops and calls for an incubator for social innovation. Vivek writes, "By 2010 or thereabouts, India may displace Japan to emerge as the world’s third largest economy. While all this may sound heady, it is of little comfort to those who exist at the bottom of the social pyramid. The fact is that even well beyond 2010, a good mass of our people would remain five to seven decades behind their Japanese counterparts. A cursory look at our current social indicators should have a sobering effect on our ambitions to emerge as a hub of global economic activity.Current trends in the economy suggest that the trickle-down effect would continue to remain tardy and income growth of the lowest three deciles of the population would be much slower than the national average. This is because the service sector would continue to lead economic growth in the foreseeable future. Apart from IT and BPO, new segments in services are now acquiring momentum and would continue to create opportunities for the educated middle-class. For instance, the surge in auto retailing, restaurants and hospitality services in urban areas, the retailing boom, to be now joined by civil aviation would increasingly reduce unemployment among the educated youth. Indeed, in some areas such as BPO, construction, civil aviation etc, there is already a shortage of trained people and new facilities for education and training need to be created. What we need today is an institution that can “incubate” new ideas that stimulate social innovation for transforming the lives of the poor in our country, just like there are incubators for nurturing scientists and technologists with ideas for new products and services and turn them into entrepreneurs".But all converge on one theme - while growth is seen centered on india, the country has indeed a long way to go - far longer than what is internally visualised let alone being planned. This has to be in the minds of all concerned about india.

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